Re-enrollment Keeps Micro Retirement Plans Ongoing

Andrew Meadows, consumer and brand ambassador at Ubiquity
Retirement + Savings (formerly The Online 401k), tells PLANSPONSOR that regular
re-enrollments can be a lifeline for small business retirement plans.

Ubiquity’s average plan client has just 12 participants, Meadows notes, calling the small and micro plan segment “our
bread and butter.” He says Ubiquity has found success in this segment of the retirement
plan market because it strives to be independent and affordable—selling only recordkeeping
and administration and using index-based, third-party investment options. But
the small and micro plan segment is not without its
challenges.

“Being in the small and micro plan environment, we’re actually
at risk of losing clients, whole plans at a time, if enough of the employees
don’t decide to participate,” he explains. “If a small business plan is only
benefiting a small group of employees out of a small workforce, you can bet the
owners are going to question the cost of administering the plan.”

For this reason, Ubiquity makes it a priority to talk with
small-plan sponsors and business owners about the benefits of regular re-enrollments.
Automatically sweeping all or some of the small business’ staff into the
retirement plan will not only ensure the ongoing stability of the plan, Meadows
says, it also increases the chances that employees will have a successful retirement
by kick-starting the investment process.

“It’s not
hard to image a scenario in which a plan with 10 participants sees participation drop 50% or more really
suddenly—there could be a big staff turnover due to a wave of
retirements, for example,” Meadows says. “Re-enrollment is really important in
this context and helps make sure the plan continues to grow and endure, especially when it is combined with automatic plan enrollment for new employees.”

Small business owners tend to wear many different hats,
Meadows adds, “So it’s on us to make the re-enrollment process as easy and
effective as possible.”

“We
are big on a consulting approach in this sense,” Meadows says. “The typical
small business client probably doesn’t have a dedicated HR person who has
re-enrolled a retirement plan before. It’s a real opportunity for us to be able
to look at their situation and help them design the right plan for both
employer and employee.”

Meadows suggests that small business plan officials engaging in a re-enrollment should assess
how the company has changed since the initial launch
of the plan. The challenges and objectives of small businesses can shift rather
quickly compared with more established organizations, Meadows notes, adding
more importance to the concept of regular re-enrollments.

“If you’re going to re-enroll, you can also build engagement
by creating new pieces of the plan to point to and advertise,” he continues. “Maybe
you’ll add a new loan provision that will encourage more people to get into the
plan, or maybe you’ve stretched the match or added a hardship provision. This
sort of change should be presented front and center to the work force.”

Meadows suggests regular re-enrollments won’t just benefit the
rank and file at small businesses—owners will see a variety of benefits that
come along with a strengthened retirement plan.

“If it’s just the owners contributing to a retirement plan you’re
almost guaranteed that you’ll run into a top-heavy situation—there will be too much
money in the plan that is benefitting the highly compensated employees,” he
says. “That’s a conflict we are always having to watch for, and one we can
fight with re-enrollment. We really want to avoid having to take money out of
the plan.”

Small businesses often say they can’t afford the cost of
administering a plan or making employer matching contributions, Meadows
says, so they are afraid to establish a plan.

“One thing we can point out here is just the positive
business performance impact that including a retirement plan can have in terms
of things like productivity and workforce loyalty,” Meadows notes. “We can also talk to the small
business owners about all the tax credits available for plan sponsors—that’s a language
they understand and which really resonates with a lot of small business owners.”

For example, Meadows says there is a tax credit available
for small business owners establishing a new qualified retirement plan, amounting to $500 for three consecutive years, for a $1,500 total tax savings right off the bat.

“If you go with a low-cost plan provider, that’s probably
going to be a third or even half of what you’ll spend to run the plan over
that time period,” Meadows says. “Then you can talk about tax deductions. Any
employer contributions that you make become tax deductible for the company.

“Probably the most effective argument I can make is that establishing a
retirement plan will be great for the business owners’ own long-term financial
security,” Meadows concludes. “Getting the rank-and-file employees into a plan
will allow you, as the business owner, to maximize your own tax-advantaged
investments and savings via the plan. It’s a win-win.”